Since the deregulation of mandatory assurance of SMEs audits, there are fewer audits to be performed by law in response to calls to reduce the regulatory burden for small businesses. Although regulatory demand for audit services is decreasing, demand for voluntary audits continues. (SSo.agc.sg, 2019)
Simpler Business does not mean an easier audit. Small businesses tend to have a more related-party transaction, lower capacity in keeping the book accurately and provisions which can be subject to some complex taxation issues and company act on accounting standards.
SMEs may not have the expertise in the recent change in accounting standards. It is no longer just debit and credit entry, but to account for the transaction at fair value such as FRS115 on revenue recognition no longer risk and reward but base on control (5 steps approach) (ASC.gov.sg 2017) and FRS116 rights of used assets, the accountant no longer can account it as rental expense for leases more than 12 months. (Isca.org.sg, 2016)
Many “Audit Clients” has the misconception that Auditor must listen to the audit client and expect that the Auditor sign-off clean audit opinion. The word ‘client” would mean out of favour, which resulted in audit failures, would vaunt their independence.
The term “audit” is a systematic and independent examination of books, accounts, statutory records documents and vouchers of an organisation to ascertain the financial statements, as well as non-financial disclosures, present a true and fair view. (En.wikipedia.org.n.d.)
Many audit firm, especially small-medium practitioner (SMP) due to fees pressure, may not put enough work in the engagement resulting in under audit.
In general, the auditor owed their duty to the shareholders for statutory audit. However, in some instances, the auditor may owe the duty to the landlord and statutory board, i.e. GST department.
For instance, in auditing gross sales turnover, the provision relates extra rent paid based on gross sales. When auditor performs such audit, they report the gross sales directly to the landlord; the landlord will expect a proper audit to minimised revenue leakage and improve the profitability of the tenant by identifying any unrecorded revenue. It is not simply taking the tenant internal records and signed off according to tenant instruction or representation. More works must be done to ensure completeness and accuracy. Under audit may result in loss of revenue to the landlord and GST department. The auditor and the auditee must be mindful of the legality and potential thread.
Hence, it is a good practice to stop referring to the companies they audit as ‘client” but to refer them as an audited entity or audited company to bring up the reputation of the audit industry in as a whole.